The statistics say it all. Family Businesses are the backbone of the UK economy and the bedrock of our communities. There are three million family firms in Britain. Family businesses employ over 9 million people; they contribute almost a quarter of total UK GDP and provide over 81 billion in tax to the UK Exchequer annually (source UK BIS/Oxford Economics).
As such, family firms make a significant financial contribution to the UK economy and are a vital source of social and human capital, supporting communities and giving back through their involvement in various philanthropic areas too.
Starting a new family firm may be a mix of the daunting and the exciting. As a new business, or a first generation family firm that could succeed for many generations, getting the business up and running on the right footing from day is a good place to start.
There will probably be little time to consider all the challenges that lie ahead as you start out marketing the business, dealing with customers, sorting out the finances and everything else in between. All successful entrepreneurs tell tales of the early days when they worked 24/7, but in hindsight many admit there are things that they would have done differently given the time and the foresight.
What may seem like trivial issues to a young family business, that is trying to grow their customer base and hone their product, may be the difference between ultimate success and failure in years to come.
1. Write down what you want the business to become your vision and values this becomes important as you grow and seek to take on more staff whilst looking to remain true to your core principles.
2. Then consider the financial needs of the business as it starts out and review all financial options available motor finance, asset finance, start-up loans, grants, bank overdrafts etc.
3. Ensure that there is a detailed business plan with integrated financials you need to know how the business is doing and be running a business with long-term sustainability first and foremost. Again, a qualified financial adviser can help at this stage
4. Also, review your financial circumstances with a qualified financial adviser and consider setting out a salary/dividend strategy.
5. And ensure your wills are up to date and take into account that the new asset you are creating could become your most valuable.
6. Next review legal and statutory obligations to ensure that compliance is complete consider all aspects including VAT, auto-enrolment etc.
7. Finally, draft a shareholders agreement as soon as practically possible and determine who can own shares, how the shares are to be valued in the event of a dispute, sale or divorce and include policies on who can actually join the business and the skills required to do so.
At the onset everything is likely to be exciting and energising; a whirlwind of activity. Without wishing to burst the entrepreneurial bubble, plans and policies must be put in place to safeguard the family and the family firm in the event of the unforeseen occurring the death of the founder or an unexpected divorce for instance.
Having a shareholders agreement in place to deal with some of these challenges, such as who can own shares and how they can be transferred, may seem like awkward and unnecessary conversations when starting out but open and honest dialogue and good governance are two of the pillars for success in a family firm. It is better to have the policies in place in advance than risk upset down the line.
Penny Lovell is leader of the Family Business Club and head of Private Client Services at Close Brothers Asset Management. Penny and her team are currently undergoing a Family Business Road Trip 2014 as part of the Family Business Club, which launched in January to help family businesses and bring them together to share knowledge and experience.